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Box A: Measures of Labour Market Slack

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  • Fergus Jimenez-England

Abstract

As the UK economy recovers from the aftermath of Covid-19 and the recent inflationary episode, we are confronted with a labour market whose unemployment rate is low and where year-on-year nominal wage growth remains elevated. The persistence of upward wage pressure has proved a stubborn problem for the Bank of England, which has cited persistent domestic inflationary pressure as one of the key factors behind their cautious approach to monetary easing. Therefore, current policy requires an accurate measure of labour market slack so that risks to wage inflation can be plausibly estimated. This box discusses the extent to which the unemployment rate and vacancy-to-unemployment ratio (V/U) can explain the level of wage inflation observed before and after the Covid-19 pandemic.

Suggested Citation

  • Fergus Jimenez-England, 2024. "Box A: Measures of Labour Market Slack," National Institute UK Economic Outlook, National Institute of Economic and Social Research, issue 16, pages 15-24.
    • Handle: RePEc:nsr:niesra:i:16:y:2024:p:15-24
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    File URL: https://www.niesr.ac.uk/publications/subdued-growth-challenging-fiscal-landscape?type=uk-economic-outlook
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